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Coinbase-XRP Destination Tag rumpus: How missing numbers led to loss of funds and a Twitter war

Coinbase, one of the biggest cryptocurrency exchanges in the United States, was under the radar due to negative news surrounding its operations. The exchange received a lot of attention because of the addition of XRP on the platform, which resulted in the XRP community rejoicing, and other communities frowning. This was followed by a controversy surrounding insider trading and Neutrino acquisition, leading to the crypto-community starting a #DeleteCoinbase movement.

However, the exchange’s tryst with the XRP community hasn’t come to an end as the exchange fell prey to the community’s wrath. This time, the controversy surrounding the exchange did not pertain to insider trading, but was related to something much more significant.

The issue was associated with something known as the Destination Tag Technology, a technology that was not being utilized by all cryptocurrencies in the space. Popular coins using this technology include Monero [XMR], a leading privacy coin, Stellar [XLM], and XRP.

According to a Medium blog post by Atomic Wallet, a majority of exchanges in the space have only one address for XRP transactions, resulting in all users of the exchange having the same XRP address. The only way to distinguish each transaction and identify a specific one is via the Destination Tag, “a short complimentary code piece that assigns your transactions to a certain account.” If the tag input is incorrect, the token is likely to be sent to another user with that particular tag or to the exchange storage.

Destination Tag | Source: Atomic Wallet

The wallets can either be a desktop wallet or a hardware wallet, where users have complete control over their public and private keys. However, for Coinbase Wallet and Coinbase.com, users are required to enter the destination tag, and it has to be correct. If it is wrong or not entered, then users will permanently lose control of the tokens as Coinbase will not be able to recover them.

The exchange had clearly mentioned this during the announcement of the listing, even creating a separate page on Destination Tag.

Coinbase XRP | Source: Bob Moneybags YouTube

For better understanding, here is a screenshot of the Binance’s XRP transaction page, the largest cryptocurrency exchange in terms of trading volume.

Binance XRP Wallet Addresses from account 1 | Source: Binance

Binance XRP Wallet Addresses from account 2 | Source: Binance

Nevertheless, in reality, these tokens are not “lost;” the exchange needs to verify the transaction and the user to send back the cryptocurrencies. Coinbase’s initial refusal to do so led to the exchange being criticized again.

Dr. T, a prominent XRP proponent, said,

“Of course you can do something! Ask the user to send a small test transaction to the correct destination tag to prove they control the wallet that sent the transaction with error. Then move the balance on your internal database! Simple. Why are you making it so hard ?! Just do it”

The issue was bought up by Patrick Boake on his official Twitter handle, stating that a user of Toast Wallet did not fill in the destination tag. The destination tag is not a mandatory category that has to be filled by users on the wallet, and around six users of the wallets reportedly lost their funds. Apart from this, there were other members of the community who reportedly completed a transaction with a wrong destination tag.

Source: Twitter

Toast Wallet also released an official statement on the issue, stating that there was an issue with funds that were sent from Toast Wallet to Coinbase. They said,

“We’ll be releasing a new version soon including a fix contributed by @omarish at @coinbase fixing an issue where blank destination tags were being incorrectly set to 0 when sending from Toast. (Thank you!) Remember to always specify the destination tag when sending to exchanges!”

Source: GitHub

Nonetheless, the exchange is addressing the problem, asking users who lost funds due to ‘incorrect’ Destination Tags, to contact them.